You’ve hired temporary attorneys to assist on a case. Now it’s time to recover fees and you’re left wondering if you can recover what you paid outside counsel from either your client, or the losing party. Good news! It looks like you can do both.
An attorney asked our legal services team to research whether a law firm could recover amounts paid by it to outside counsel, either from the losing party or through charging such expenses to its clients, and our team found the best way for you to engage outside counsel to make sure your recovery goes smoothly.
There are recovery routes for both positioning the expenses as fees, and as costs for retaining temporary attorneys, but if you want to recover the fees paid to outsourced attorneys under prevailing party statutory recovery, it becomes important to categorize them as attorney’s fees upfront, rather than as “costs” incurred.
The cost of hiring temporary attorneys can be recovered as prevailing party attorneys’ fees.
Generally, courts do not tend to inquire into the nature of the employment relationship between each attorney on an invoice and the firm requesting the fee award. When attorneys’ fees may be awarded pursuant to statute or contract, the only requirement is that the amount requested must be reasonable as determined by a trial court.[1] For example, in the context of a bankruptcy proceeding, a court allowed debtor’s counsel to recover from the estate the amounts it paid to bring on temporary attorneys.[2]
Furthermore, an award of attorneys’ fees for temporary attorneys’ billable time would comport with the purpose of the fee-shifting provisions. The purpose of most fee-shifting provisions in federal statutes is to enable private parties to seek redress for injuries resulting from violations of federal laws.[3] The stated purpose of the fee-shifting provisions is met if successful litigants can recover the fees they have paid on account of temporary or outsourced attorneys. This is particularly true because the use of temporary attorneys serves to keep the costs down for clients and the law firms that service them.
When attempting to recover statutorily allowed prevailing party fees, there is a distinction between fees and costs.
Under 28 U.S.C. § 1920 a distinction is made between fees and costs. Specifically, the types of costs that are recoverable are limited. While reasonable costs and fees can generally be charged to a client in accordance with the fee agreement, the issues become how they are characterized and whether they can be recoverable from the opposing party as prevailing party fees under the statute. The statute only allows for costs specified within the statute to be recoverable. Therefore, if temporary attorneys’ fees are defined and treated as costs by a law firm, they may not recoverable as such under the. However, if they are defined as attorney’s fee, they can be recovered.[4]
Therefore, it is important to make sure that when you outsource attorney work you have a plain in place for recovering those fees, so you don’t end up leaving money on the table. If you think that your client will recover attorneys’ fees under 28 U.S.C. § 1920, you should include the fees in your fee agreement. If there is no basis for recovery of prevailing party fees, you can characterize fees associated with outsourced attorneys as a cost of doing business and charge them as such to your clients.
The ABA has acknowledged the rising use outsourced attorneys and issued Ethics Opinions on the subject.
It is an increasing trend for firms to hire outside or temporary attorneys to assist them with ever-changing needs and workflow. The ABA has acknowledged this trend and issued at least two ethics opinions on the subject. In its first such opinion, the ABA opined that if the temporary lawyer works under the close supervision of a lawyer associated with the firm, the use of the temporary lawyer will not need to be disclosed to the client.[5] The amount charged to the client may include the amounts paid to the temporary lawyer, any associated fees charged by a placement agency, and any additional charges for overhead and profit, as long as the total fee charged to the client is reasonable.[6] In a follow up opinion, the ABA explained that the services of a temporary lawyer may be billed to a client either as fees for legal services or as costs or expenses incurred by the retaining lawyer as long as they are reasonable.[7]
Regardless of whether the outsourced legal work is charged to the client as a fee or a cost, the rate at which the outsourced attorney will be charged must be disclosed to the client. Accordingly, it is the ABA’s opinion that when an outsourced attorney’s fees are charged as legal services to the client, the retaining law firm may set its own rate for those hours including a surcharge over and above what is paid to the outside attorney. [8] Meanwhile, if the fees associated with the temporary attorney are billed as a cost, they must be limited to the costs actually incurred by the law firm. This distinction determines whether and how these costs can be recovered under statutorily allowed prevailing party fees.
Therefore, fees associated with outsourcing legal work may be passed along to the client as fees for legal services, are recoverable under prevailing party statutes. However, the fees that are charged as costs to the law firm are not.
Get copies of all authorities cited in this blog.
De Novo Review provides law firms with flextime attorneys and paralegals to perform legal services on an as-needed basis so you can scale your firm on your own terms.
FOOTNOTES
[1] Wolf v. Frank, 555 F.2d 1213 (5th Cir. 1977).
[2] In re Worldwide Direct, Inc., 316 B.R. 637 (Bankr. D. Del. 2004).
[3] Thorpe v. Collection Information Bureau, Inc., 963 F. Supp. 1172, n.FN 2 (S.D. Fla. 1996).
[4] See Procaps S.A. v. Patheon, Inc., No. 12-24356, 2016 WL 411017, *2 (S.D. Fla. Feb. 2, 2016) (holding that a court is limited to taxing only those costs specifically authorized by statute).
[5] See Amer. Bar Ass’n Standing Comm. of Ethics and Prof’l Resp., Formal Op. 88-356 (Dec. 16, 1988).
[6] Id.
[7] See Amer. Bar Ass’n Standing Comm. of Ethics and Prof’l Resp., Formal Op. 00-420 (Nov. 29, 2000).
[8] Id.